How GAAS and GAGAS Differ and Why

How GAAS and GAGAS Differ and Why

Generally Accepted Auditing Standards (GAAS) have existed for many years. On the other hand, Generally Accepted Government Auditing Standards (GAGAS) were first published by the Government Accountability Office (nee General Accounting Office) in 1972 and were revised as recently as August 2011. Why are two sets of auditing standards needed for the same profession? Is this necessary? How do these standards differ?

General Standards. For GAAS the following general standards exist: (1) The auditor must have adequate technical training and proficiency to perform the audit, (2) the auditor must maintain independence (in fact and appearance) in mental attitude in all matters related to the audit, and (3) the auditor must exercise due professional care during the performance of the audit and the preparation of the report.

For GAGAS, the following general standards exist: (1) Independence must be maintained, (2) sound professional judgment must be exercised, (3) the audit must be conducted by personnel who collectively have the necessary skills, and (4) the organization must have an internal control system in place. Basically GAGAS adds the aspect of internal control as a standard rather than as a subset of other standards. Under GAAS, if internal controls are weak or non-existent, the auditor must test more transactions and perform additional audit steps to meet audit standards. However, under GAGAS, the lack of internal controls is "fatal" and alternative assurance techniques are not acceptable.

Standards of Field Work. For GAAS the following general standards exist: (1) The auditor must adequately plan the work and must properly supervise any assistants; (2) the auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement of the financial statements whether due to error or fraud, and to design the nature, timing, and extent of further audit procedures; and (3) the auditor must obtain sufficient appropriate audit evidence by performing audit procedures to afford a reasonable basis for an opinion regarding the financial statements under audit. Under GAGAS, the standards for field work vary by type of audit...

Standards of Reporting. For GAAS, the following standards exist: (1) The auditor must state in the auditor's report whether the financial statements are presented in accordance with generally accepted accounting principles (GAAP), (2) the auditor must identify in the auditor's report those circumstances in which such principles have not been consistently observed in the current period in relation to the preceding period, (3) when the auditor determines that informative disclosures are not reasonably adequate, the auditor must so state in the auditor's report, and (4) the auditor must either express an opinion regarding the financial statements, taken as a whole, or state that an opinion cannot be expressed, in the auditor's report. Under GAGAS, the standards for field work vary by type of audit...

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